Euro debt crisis: Is Spain the new Greece?

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People protest Spain's austerity measures during the May Day rally in the center of Madrid, Tuesday, May 1, 2012. Spain's Prime Minister Mariano Rajoy is trying desperately to cut a bloated deficit, restore investor confidence in Spain's public finances, lower the 24.4 jobless rate, and fend off fears it will join Greece, Ireland and Portugal in needing a bailout.

Global markets may have now priced in a full-blown default by Greece, or even the country’s exit from the euro zone. But they haven’t factored in a financial meltdown in Spain, and that is where the new focus is shifting.

Spain would be a much bigger problem than Greece, just as a matter of size. It has debt of some 735-billion euros, of which 175-billion euros matures this year. In comparison, Greece’s debt amounts to about 300-billion euros.

Spain is working on a new plan to bolster its failing bank industry and Prime Minister Mariano Rajoy says the government will detail new financial reforms this Friday.

But the bearish economist Nouriel Roubini says Spain’s problems cannot be fixed from within. In a Financial Times editorial on Wednesday, he argues that the country needs direct capital injection from the EU bailout fund.

The problem is that both sides are resistant to the move. Germany, already burned by Greece, doesn’t want to give more money without strict fiscal controls. And Spain doesn’t want to give the EU control over its banks, Mr. Roubini says.